HOW MUCH SHOULD I SPEND
Hill Tech Solutions shares research on budget guidelines for IT spending for your organization.
How Much Should I Spend on Technology?
In one form or another, it’s the question we probably hear more than any other: “How much should my business be spending on technology?” And the answer is, “It depends.” It depends on obvious factors like the size of your business and the industry you’re in, of course. But a great deal of research has been done on technology spending and it does offer some benchmarks as a starting point.
While IT spending has always been a bit of a moving target just by the nature of the rapidly-changing tech industry, the pandemic had a huge impact in two major ways: First, most businesses had to quickly ramp up their spending in early 2020 to accommodate the work from home (WFH) environment. That hurry-up effort left behind a trail of weaknesses for hackers and ransomware purveyors to exploit, leading to additional spending on security and prevention measures.
Since 2020, the ransomware boom has continued unabated, and it’s only very recently that we’ve seen signs of a reduction in attacks. Note that this does not mean fewer attempts, but fewer successful network penetrations. In other words, more organizations have gotten their defenses in order.
One final note before we get to the numbers: These estimates encompass all technology spending. While the focus of the last few years has been on preventing ransomware and other malware, technology spending includes the routine replacement of aging equipment and, for larger organizations, investment in innovation including automation and artificial intelligence (AI).
Virtually all of the existing research expresses technology spending as a percentage of total revenues. Let’s take a look:
Spending by industry sector
By far the biggest determinant of an organization’s technology spend is its industry. A 2020 Global Technology Leadership study, for example, showed that organizations in the banking and securities industry budgeted just over 10% of revenues on tech, while manufacturing concerns were at less than 2%. (This may be one reason why manufacturing has been a favorite target for hackers over the past few years.)
Unsurprisingly, sectors budgeting more than 5% of revenues for technology are chiefly those that handle large amounts of sensitive customer data as a part of their core business: banking, technology, business and professional services, insurance, and health care. Below that 5% threshold were verticals that are generally less dependent on transactional customer data: travel, education, and construction, among others.
Spending by company size
Small and midsize business owners should note that there’s an inverse relationship between company size and technology budgets. In other words, larger organizations will tend to budget a smaller percentage of revenues and vice versa. Research by Computer Economics in 2020 shows an average budget of 3.2% for large companies. For midsize organizations, that number jumps to 4.1%, and for small businesses it more than doubles to 6.9%.
Another 2020 study from Computer Economics reinforces the idea that larger organizations budget a lower percentage of revenues, showing an average spend of 2.6% on tech. The study, however, was limited to organizations with at least $50 million in annual revenue or spending in excess of $1 million on technology.
How much is too much?
While guidelines for industry sector and company size are a useful starting point, each business is unique, with its own needs, goals and objectives. Your technology budget will be specific to your situation.
Phishing attempts, business email compromise (BEC) attacks and other penetrations pose an existential threat to businesses, and especially smaller ones. But while cybersecurity is a huge part of a technology plan and the budget for it, your IT solutions also must allow your business to operate efficiently, to compete and to grow. Your overall technology spend should support operational growth, not just lock down your network.
If the averages for spending by industry and company size aren’t readily applicable to your situation, here’s another way to budget: Experts typically place the cost of managed IT services at between $120 and $300 per user per month. Those numbers, however, will vary greatly depending on a number of factors, including the gap between your current technology posture and the ideal state. Bear in mind that there may also be onboarding expenses or retainers.
If that seems like a lot, consider the alternatives. Costs of system downtime can run to thousands of dollars per day in lost revenue, and that’s exclusive of associated issues including reputational damage or, in some industries, fines for noncompliance. Recovering from a ransomware or other malware attack is even more costly.
Using the averages here, take a look at your current budgeting for technology. If it appears that you’re spending significantly more than you should, there may be efficiencies to be found in newer technologies, including cloud-based solutions. If you’re spending significantly less, chances are strong that you have some unaddressed issues, issues that may pose serious threats to your business.
Every dollar spent on tech should offer an ROI in the form of improved efficiency and/or reduced risk. Given the costs of network downtime, and the even greater cost of a network breach, a properly planned and executed technology strategy is an investment, not an expense.